New Delhi: As the Reserve Bank of India continues to protect the rupee from the powerful dollar’s surge, a Reuters poll indicated that India’s already depleted foreign exchange reserves are projected to decline much more, reaching their lowest level in more than two years by the end of 2022, The Mint reported.
The RBI has reduced its foreign exchange reserves by almost $100 billion to $545 billion from a peak of $642 billion a year ago, and more is on the way in a fight that has so far failed to stop the rupee’s decline to a historic low versus the dollar.
According to the median prediction from a Reuters poll of 16 economists conducted on September 26–27, those reserves are expected to decrease by another $23 billion to $523 billion by the end of this year. That would be the lowest level in more than two years if realised.
Also Read: Price of gold slashed by Rs 6,695, buy now at THIS rate
Forecasts ranged from $500 to 540 billion.
This means that the RBI will continue to drain its foreign exchange reserves at a rate not seen since the global financial crisis of 2008, when they decreased by nearly 20%.
Compared to the taper-tantrum period in 2013, when the U.S. Federal Reserve abruptly reduced government bond purchases, it has already burned through reserves at a significantly faster rate.
A decade later, India is in a like circumstance. The rupee has lost over 10% of its value versus the dollar this year and on Wednesday hit a record low of 81.95 per dollar, despite regular dollar sales interventions and hopes for more.
“With the latest move that we have seen in the rupee, I expect the RBI to continue intervening to perhaps not try and defend a particular level of the currency, but certainly try and reduce volatility,” said Sakshi Gupta, principal economist at HDFC Bank.
“We would see even more interventions in the coming days to deal with the increasing pressure on the rupee and a widening current account deficit, leading to a greater drawdown in the FX reserves by the end of this year.”
Also Read: ED freezes Bitcoins worth Rs 12.83 cr under PMLA in gaming app E-nuggets case
A small number of economists in the survey cautioned that the widening current account deficit, which was anticipated to end the fiscal year at its widest in a decade, might cause overall forex reserves to decline more than their predictions during the coming year.
The RBI’s slower rate hikes than the U.S. Federal Reserve are one factor contributing to the decrease.
According to a separate Reuters poll, the Fed is now anticipated to hike rates by an additional 150 basis points over the next few months, bringing them from near-zero in March to 3.00%–3.25%.
The RBI, which only began raising rates in May and has only increased the repo rate by 140 basis points, appears to be almost finished. It is anticipated to increase this cycle by just 60 basis points further, with 50 due this week.
Read More :- Latest Business News
